The Importance of Beneficiary Designations, Especially in Same-Sex Couples

Estate Planning Estate Planning for Gay Couples Financial Advisor for LGBT Couples Financial Planning for same-sex couples April 10, 2017 Author: Woody Derricks

The Importance of Beneficiary Designations, Especially in Same-Sex Couples

 The last time you purchased a life insurance policy or set up a retirement account, do you remember who you designated as your beneficiary? As your life changes, your beneficiaries may need to change, too. They should be reviewed periodically, if not annually, to ensure that they are up-to-date. Beneficiary designations are especially critical for same-sex couples who are in civil unions or other types of domestic partnerships – since those relationships are not recognized by all court systems. By quickly reviewing your accounts every year, you can make sure that your assets go exactly where you want them to go.

What is a Beneficiary?

A beneficiary is a person, charitable entity, organization, or trust that your asset or account will be transferred to upon your death. While you can typically name your beneficiary, there are a few exceptions:

  • The Employee Retirement Income Security Act (ERISA) sets minimum standards for Defined Benefit Plans/Pensions (DBPs) and Defined Contribution Plans (DCPs). The Act assumes that your spouse should be the beneficiary of these accounts. If you are legally married and want to list someone else, you must have written approval from your spouse.
  • Some states also have laws regarding spousal rights when it comes to retirement accounts and other assets.

What Types of Policies Need Beneficiaries?

Accounts and policies that require beneficiaries typically fall into the following categories:

  • Life insurance
  • Annuity contracts
  • Retirement accounts (e.g., 403(b)s, 401(k)s, and IRAs)
  • Some pension plans
  • Payable-on-death (POD) and transfer-on-death (TOD) accounts

Note: Unlike retirement accounts, individual bank and investment accounts (and some joint accounts) don’t typically include beneficiary forms when you open them. You may want to request POD (bank accounts) or TOD (investment accounts) forms to ensure that your desired beneficiary is listed on those accounts.

Why are Beneficiaries so Important for Same-Sex Couples?

While federal laws recognizing same-sex marriage give legally-married same-sex couples all the spousal rights of others, couples who choose not to marry must be especially vigilant about naming beneficiaries and keeping them up-to-date. If one partner passes away without designating the other by name, assets could end up in probate court – which will not only cause unnecessary expenses but can also expose assets to creditor claims.

Even if you are legally married, beneficiary designations are still critical. If no beneficiary is named, accounts are usually transferred based on whatever their contractual provisions state – which may not align to your wishes. Assets could also end up with a former spouse, instead of your current one, if they are not updated appropriately.

Frequently Asked Questions

  • Should I set up a trust?

Although you can transfer assets via a trust, it is a good idea to speak to an attorney, a registered investment advisor, and a tax professional before making any decisions. There are many tax implications when it comes to retirement accounts – especially IRAs. A trust could actually cost your beneficiary money in the long-run.

  • How do I change a beneficiary designation?

Every company will have a specific form for their beneficiary designation. Make sure that you receive a receipt of any changes in writing.

  • What if my named beneficiary dies before me?

If your beneficiary form offers a “per stirpes” designation, the asset will go to the beneficiary’s children. If it doesn’t, then your account could be divided amongst your surviving family members. It all depends on the default process that is defined by your account contract and the laws of your state.

  • What does a “per stirpes” designation mean?

If you can choose a “per stirpes” designation, your asset will be divided amongst your beneficiary’s children (or grandchildren, if no children are living) if the beneficiary dies before you. Note: This typically includes biological and adopted children, but not stepchildren.

  • Can’t I just put everything in my will?

There is usually a trail of ownership for an account. If the account has a joint owner, the asset will automatically pass to that person or entity. If not, then it will pass to the designated beneficiary or named trust. If no beneficiary is named, then your will may be considered – but any beneficiary listed on an account will supersede the instructions in your will.

Make Time to Protect Your Assets

You may have spent your whole life collecting or earning the funds located within an account; don’t let a judge decide where all that hard work goes! Set aside a few minutes every year to make sure your assets are going to the proper loved ones or organizations. Your beneficiaries will thank you!

As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: